Australia’s National Electricity Market has reached a tipping point: grid-scale and household batteries have grown large enough to erase the midday price trough that once made solar profitable and the evening peak that made storage lucrative, pushing wholesale prices down 30-40% year-on-year and simultaneously evaporating the arbitrage margins that underwrite battery business cases. The very assets solving the duck curve are now its victims, creating a feedback loop that threatens to stall the next wave of storage investment unless revenue stacks shift from energy arbitrage to capacity, frequency, and grid-services markets.
How the NEM’s Duck Curve Disappeared and Why Prices Collapsed
The “duck curve” – the deep midday net-demand trough caused by rooftop solar oversupply followed by a steep evening ramp – has been the defining operational challenge of Australia’s grid for a decade. In 2023-24, two forces converged to flatten it. First, rooftop PV capacity surpassed 22 GW across the NEM, with South Australia regularly hitting 100% solar contribution at noon. Second, grid-scale battery capacity jumped from roughly 1.6 GW in mid-2022 to over 3.5 GW by mid-2024, while household batteries added an estimated 1.5 GW of behind-the-meter dispatchable capacity. That combined 5 GW of flexible demand and supply now charges aggressively during the solar trough and discharges into the evening ramp, mechanically compressing the price spread between 11 a.m. and 7 p.m.
Wholesale spot prices tell the story. NEM time-weighted average prices fell from roughly A$90-100/MWh in FY2023 to the A$55-65/MWh range in FY2024, with the deepest drops in South Australia and Victoria where battery penetration is highest. Negative price events – once rare – now occur in 15-20% of trading intervals in SA during spring. The evening peak, historically the high-margin window for peaker plants and batteries, has been shaved by 300-500 MW in each region as stored solar shifts the net-demand curve rightward. For battery operators, the arithmetic is brutal: a 2-hour battery that once captured A$150-200/MWh spreads on a typical summer day now sees A$40-70/MWh spreads, cutting daily arbitrage revenue by 60-70%.
Why Arbitrage-Only Business Models Are Breaking and Where Revenue Must Shift
That points to a structural break in the economics of standalone energy arbitrage. In the NEM’s energy-only market, batteries have no capacity payments – they earn solely from price spreads, Frequency Control Ancillary Services (FCAS), and, increasingly, the wholesale demand response mechanism (WDRM). FCAS markets remain lucrative: contingency raise/lower and regulation services still deliver A$30,000-50,000/MW-year for fast-responding assets, but saturation is visible. The 6-second and 60-second contingency markets have seen clearing prices drop 40-50% as more batteries bid in, and AEMO’s new Fast Frequency Response (FFR) market, while promising, is still sub-100 MW in scale. By comparison, California’s CAISO market provides resource adequacy payments of roughly US$50-80/kW-year (≈ A$75-120/kW-year) on top of energy and ancillary revenues – a revenue floor the NEM lacks.
If this trend holds, the next 2-3 GW of battery projects in the NEM connection queue – many financed on 2022-23 price-spread assumptions – will struggle to reach financial close without contracted offtakes or capacity mechanisms. The federal Capacity Investment Scheme (CIS) tenders, targeting 6 GW of dispatchable capacity by 2027, are the primary policy response, but the first round’s strike prices (reportedly A$80-110/MWh equivalent) imply a subsidy of A$20-40/MWh above current forward curves. That subsidy gap is effectively the market’s valuation of the missing capacity payment. Developers who can stack CIS contracts with FCAS, WDRM, and emerging system-strength services (inertia, fault level) will survive; pure merchant arbitrage plays will not.
Who This Affects
- Utility planner: The flattened duck curve means minimum demand now occurs later and higher than ISP 2022 forecasts – update load-duration curves and reassess the timing of coal retirements against the new net-demand profile, not the old one.
- Storage developer: Arbitrage revenue assumptions in financial models must be cut by 50-65%; rebase pro formas on FCAS + CIS + WDRM stacks, and negotiate tolling agreements that transfer price risk to offtakers.
- Policy analyst: The CIS tender design must explicitly value fast frequency response and synthetic inertia, not just energy shifting, or the scheme will over-procure 2-hour batteries and under-procure 4-8 hour duration needed for winter reliability.
- Grid operator (AEMO): Minimum system load events with high inverter penetration require new operational tools – dynamic export limits, mandatory smart-inverter settings, and potentially a distributed energy resource (DER) visibility mandate – to maintain voltage and frequency stability when batteries are charging, not discharging.
- Investor: Secondary-market valuations for operating batteries should shift from EV/EBITDA multiples based on 2022-23 earnings to DCF models with contracted revenue floors; expect 15-25% haircuts on pure-merchant assets versus contracted peers.
What to Watch Next
- CIS Round 2 strike prices and duration requirements – if the scheme moves to 4-hour minimum duration, it signals policy recognition that 2-hour arbitrage batteries are no longer the system’s marginal need.
- Quarterly FCAS saturation metrics – track the ratio of offered FCAS capacity to cleared volume; a sustained offer-to-clear ratio above 3:1 in regulation markets will confirm ancillary saturation.
- Household battery orchestration trials – AEMO’s Project EDGE and VPP demonstrations in SA/VIC; if 500 MW of coordinated behind-the-meter storage can reliably provide FFR, it changes the procurement calculus for grid-scale assets.
- Coal unit withdrawal notices – Eraring (2025), Callide C (2028), and Loy Yang A (2030s) – the speed of their exit relative to firm capacity additions will determine whether price volatility (and thus arbitrage opportunity) returns in winter 2025-26.
Bottom line: The duck curve is dead in the NEM, but the market design that rewarded its slayers has not yet adapted – until capacity mechanisms or long-duration storage valuations replace pure arbitrage, the next gigawatt of batteries will need contracted revenue to get built.
Read the full report at RenewEconomy
Original source: RenewEconomy (Australian clean energy news)
Note: facts and figures attributed above to RenewEconomy (Australian clean energy news) reflect that outlet's original reporting. Broader context, cross-sector connections, and forward-looking scenarios reflect independent analysis by our editorial team.
About this article: Drafted by Energy Ai with AI-assisted research and writing based on public reporting, then reviewed under our editorial process before publication.
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